Archives For Cash

Happy New Year!

So, here we are in 2018 and you have been thinking about your personal goals for the next 12 months. Whether you’ve been in Dubai 1 year or 10 it is a useful time to take stock of your progress towards your longer term targets. So what should be on your financial check list?

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With interest rates at record lows for such a long time many savers have felt forced to become investors just to retain the real value of their money. This week I look at three reasons why you should have some cash available at all times.

The first reason is to provide for your day to day expenses. It seems obvious but if there is not enough money in the bank you will incur borrowing fees and may suffer the embarrassment of returned cheques or refused card payments at the check-out in your local supermarket.

The second reason to have cash available is to meet unexpected costs. There is always some expense or other that needs to be paid. By having cash in the bank you do not have to borrow money (which is expensive) or cash in investments (which are supposed to be long term).

The final reason is to provide you with the opportunity to time when you buy things. This may be during the sales in your favourite shop or investments after a market correction. Having cash enables you to save money by buying things when the time is right. This may not be the same as the time you actually need the item.

So, whilst holding cash does not provide you with a great return at present. It does provide you with a number of advantages that no other asset can. For this reason, most financial planners recommend you hold between 3 and 6 months’ expenses in a bank account which is available at relatively short notice but there are powerful reasons, like those above, to consider holding more.

Looking at this list, the items also make a strong argument for not spending all of your income every month as failure to save anything on a monthly basis leads to a very unstable financial position with plans being easily blown off course.

I hope the above is useful. Please let me know if you have any questions or comments.

Petrol prices in UAE are due to increase 24% with effect from 1st August. This will make the cost of petrol in UAE amongst the highest in GCC. However it will still be lower than in most countries round the world. Whilst there has been plenty of comment in the local press about the increase and the impact it will have on the cost of filling up the average family saloon, there are wider considerations for the economy.

Demand for fuel is, as economists call it: ‘inelastic.’ This is because we all need it and there are few alternatives we can quickly adopt to take its place. Therefore in the short term prices could increase dramatically and we would still pay. In the longer term people change their buying patterns and seek alternatives to avoid the higher prices.

The world’s economy is based on hydro-carbon fuel. There is virtually no business or industry on earth that does not have some need for fuel. By increasing the cost of this basic commodity the cost of all goods and services will eventually be effected as businesses attempt to pass on their increased production and delivery costs to their customers. The employed customers seek higher wages and a cycle of inflation begins. The UAE economy is linked US fiscal policy as the Dirham is linked to US Dollar. Consequently, the UAE authorities lack some of the traditional financial levers governments use to combat inflation, such as control over interest rates.

The amount by which prices increase will be dependent on the amount of fuel the business and its employees use. In UAE most goods are delivered by truck. At the present time, there is no rail option but we are fortunate that most trucks run on diesel which has not been effected by any price increase.

Additionally, the amount an average expat spends on fuel as a percentage of his or her salary is quite small compared to what they would spend in other countries. Therefore even a 24% increase should not significantly impact their standard of living. But they may opt for a more fuel efficient vehicle when they next change their family car.

Therefore whilst the increase in petrol price is not welcome, I do not believe that it could be used to justify significant price increases elsewhere and should not greatly increase inflation within the economy.

As always, please let me know if you have any thoughts or questions.

The European Central Bank (ECB) announced the findings of its stress tests on European Banks yesterday. These stress tests were designed to see if banks would fail in the event of a recession, drop in house prices and a rise in unemployment. About 130 banks across Europe were tested and 25 banks failed… Continue Reading…

This question became a little easier to answer recently as the final version of the rules governing what the criteria are for being UK resident for tax purposes were published. Prior to this, despite having convention to go by there was no statutory resident test. It was whatever HMRC said it was, which was unfair. Continue Reading…

How many different ways can you invest in a property overseas? In the last month, I have met with 4 different companies all offering different routes to owning property overseas. Each has their own place and I thought that it may be useful to summarise the schemes in a blog post. Continue Reading…

A friend of mine who worked in real estate for many years once told me,’ there are two types of people who buy property: users and improvers.’ In my experience, there are also two types of people when it comes to financial services: savers and spenders. Continue Reading…